Protecting the Rights of Consumers For Over 25 Years

Illinois Statutes of Limitation – Recent Developments

I. Various types of open end credit

A. General purpose credit cards: The statute of limitations on general purpose credit cards is five years unless a complete agreement signed by both parties and not subject to change on notice without the debtor’s signature is attached to the complaint. Portfolio Acquisitions, L.L.C. v. Feltman, 391 Ill.App.3d 642, 909 N.E.2d 876, 330 Ill.Dec. 854 (1st Dist. 2009); Resurgence Capital, LLC v. Kuznar, 2017 IL App (1st) 161853, ¶31, _____ N.E.3d _____; Midland Funding, LLC v. Raney, 2018 IL App (5th) 160479, ¶20-21, 93 N.E.3d 724; Asset Acceptance, LLC v. Tyler, 2012 IL App (1st) 093559, ¶47, 966 N.E.2d 1039; Herkert v. MRC Receivables Corp., 655 F.Supp.2d 870 (N.D.Ill. 2009); Summers v. Midland Funding, LLC, 14cv10174, 2017 WL 5152358, *2 (N.D.Ill., Nov. 7, 2017); Basile v. Blatt, Hasenmiller, Leibsker & Moore LLC, 632 F.Supp.2d 842 (N.D.Ill. 2009). Nicolai v. Mason, 118 Ill.App.3d 300, 454 N.E.2d 1049, 73 Ill.Dec. 800 (5th Dist. 1983); Parkis v. Arrow Financial Services, LLC, 07cv410, 2008 WL 94798 (N.D.Ill. Jan. 8, 2008); Ramirez v. Palisades Collection LLC, 07cv3840, 2008 WL 2512679 (N.D.Ill. June 23, 2008).

B. Reasoning:

1. Cardholder agreements are not contracts but “standing offers to extend credit,” subject to “modification at will,” which are accepted “each time the card is used according to the terms of the cardholder agreement at the time of such use.” Garber v. Harris Trust & Savings Bank, 104 Ill.App.3d 675, 432 N.E.2d 1309, 1311, 60 Ill.Dec. 410 (1st Dist. 1982). A necessary consequence of the notion that the terms of a credit card agreement may be changed by mere notice is that a credit card agreement subject to such alteration is not a “written contract” within the meaning of 735 ILCS 5/13-206.

2. Section 13-206 requires that the writing be “complete” in that it identifies the parties, states the date of the agreement, contains the signatures of the parties, and sets forth all terms of the parties’ agreement. Brown v. Goodman, 147 Ill.App.3d 935, 498 N.E.2d 854, 857, 101 Ill.Dec. 530 (1st Dist. 1986); Clark v. Western Union Telegraph Co., 141 Ill.App.3d 174, 490 N.E.2d 36, 37, 95 Ill.Dec. 563 (1st Dist. 1986); Munsterman v. Illinois Agricultural Auditing Ass’n, 106 Ill.App.3d 237, 435 N.E.2d 923, 925, 62 Ill.Dec. 125 (3d Dist. 1982); Baird & Warner, Inc. v. Addison Industrial Park, Inc., 70 Ill.App.3d 59, 387 N.E.2d 831, 838, 26 Ill.Dec. 1 (1st Dist. 1979).

3. If any essential element of the contract is omitted from the writing, “then the contract must be treated as oral for purposes of the statute of limitations.” [Emphasis added.] Armstrong v. Guigler, 174 Ill.2d 281, 673 N.E.2d 290, 294, 220 Ill.Dec. 378 (1996), quoting Toth v. Mansell, 207 Ill.App.3d 665, 566 N.E.2d 730, 733, 152 Ill.Dec. 853 (1st Dist. 1990). Accord Schmidt v. Niedert, 45 Ill.App.3d 9, 358 N.E.2d 1305, 1308, 3 Ill.Dec. 620 (1st Dist. 1976).

4. If testimony is necessary to establish any of these elements, the contract is treated as oral and subject to the five-year statute of limitations. Wielander, supra; Armstrong, supra, 673 N.E.2d at 293 – 294. “In the parol evidence cases, the dispositive question is whether evidence of oral representations is necessary to establish the existence of a written contract. If such evidence is required, then the contract is treated as oral for purposes of the statute of limitations. In other words, where a party is claiming a breach of written contract, but the existence of that contract or one of its essential terms must be proven by parol evidence, the contract is deemed oral and the five-year statute of limitations applies.” Armstrong, supra, 673 N.E.2d 293 – 294.

5. A credit card agreement that is subject to change upon notice does not contain all essential terms. Even if the debtor signed a written application that set forth all material terms at the time of the application, the “change by notice” provision — whether expressly included in the contract or implied therein by statute — makes it impossible to determine from mere examination of the document that those terms are still in effect. The creditor must either rely on the fact that a current version of the agreement was sent to the debtor or establish that no change notices were mailed. In either case, parol testimony is essential, and there is no document that conclusively establishes the terms of the agreement.

C. Other types of contracts subject to same reasoning – amount of credit not known, terms subject to change upon notice.

1. Overdraft agreements: Ramirez v. AP Account Services, 16cv6722, 2017 WL 25179, *3 (N.D.Ill. Jan. 3, 2017); Northbrook Bank v. Sykes, 16 M1 129079.

2. Equity lines of credit (HELOCs): We received a ruling from the Circuit Court of Cook County on December 12, 2018 that the Illinois statute of limitations on a home equity line of credit is five years, not ten years. United Guaranty Residential v. Richardson, 2018 M6 3965.

II. Private student loans (there is no statute of limitations on federal ones)

A. Typically student signs an application containing undertaking to repay such amounts as are approved and advanced. Some time later receives a disclosure giving financial terms, such as amount of loan, amount of points and similar fees, interest rate, and repayment date. Terms are furnished somewhere along the way, sometimes with application, sometimes later.

B. Lender does not have student sign a note once all terms are known.

C. Two federal courts have held this creates a written contract on the theory that the terms and conditions attached to the application incorporated by reference the disclosure, even though the disclosure was created afterwards. Eul v. Transworld Sys., 15cv7755, 2017 WL 1178537 (N.D. Ill. Mar. 30, 2017); Trujillo v. Asset Recovery Solutions, LLC, 17cv2303, 2017 WL 6816536 (N.D.Ill., August 9, 2017). I think that is just wrong, as incorporation of a document created by the lender later does not eliminate the need for parol evidence to show that the document was that referred to and that it does accurately state the terms agreed upon.



III. Guarantors of leases

A. Most of the lease cases I see are small business leases in which business leases credit card processing equipment

B. One line of cases holds it is separate obligation governed by written contract statute (10 years). Johnson v. Pushpin Holdings, 821 F.3d 871 (7th Cir. 2016); Armbrister v. Pushpin Holdings, 896 F.Supp.2d 746, 755-56 (N.D.Ill. 2012).

C. Another holds that the discharge of the principal debtor on limitations grounds does discharge the guarantor.

1. The general rule, at least in cases not presenting a statute of limtations issue, is that if the principal debtor’s liability is discharged, so is the guarantor’s liability. Hensler v. Busey Bank, 231 Ill.App.3d 920, 596 N.E.2d 1269, 173 Ill.Dec. 390 (4th Dist. 1992).

2. Section 43 of the Restatement (Third) of Suretyship and Guaranty states that if the underlying obligation is barred because of the statute of limitations, the guarantor cannot be sued: “if the obligee fails to institute action against the secondary obligor on the secondary obligation until after the obligee's action against the principal obligor on the underlying obligation is barred by the running of the statute of limitations as to that action, the secondary obligor's rights and duties with respect to the principal obligor and the obligee are the same as if, on the day that the statute of limitations expired, the obligee had released the principal obligor from its duties pursuant to the underlying obligation without preserving the secondary obligor's recourse against the principal obligor. Accordingly, the principal obligor is discharged from duties to the secondary obligor as provided in § 39(a), and the secondary obligor is discharged from duties to the obligee as provided in § 39(c)(ii) and § 39(c)(iii).”

3. In Westside Forest Products, Inc. v. Steven's Custom, Inc., No. 1 CA-CV 07-0552, 2008 WL 5264988 (Ariz. App. Dec. 18, 2008), a non-precedential decision, the court held that this was the law of Illinois.

D. So we have contrary prognostications of what Illinois law is, but nothing in point from Illinois courts.

E. Also problem with fictitious guarantors – the guarantor and the principal debtor are not separate legal persons. Often a lease to a proprietorship is guaranteed by the proprietor. Armbrister v. Pushpin Holdings, 896 F.Supp.2d 746, 756 (N.D.Ill. 2012). Johnson v. Pushpin Holdings, 821 F.3d 871 (7th Cir. 2016) dismisses theory, but it is adhered to by state trial courts. AEL Financial v. Errett, 13 L 2512.

IV. Application of statute of limitations to long-term installment obligations

A. We have seen trend of debt buyers acquiring first and second mortgage notes that have been unpaid since the financial collapse of 2008 and enforcing them by suing on the note or foreclosing on the mortgage if the consumer still owns the property. In many cases these are second mortgage notes left unpaid after the foreclosure of the first.

B. The debt buyers claim that the statute runs separately on each installment, so that if acceleration never takes place or is rescinded, the consumer is subject to suit for up to 40 years in the case of a 30-year mortgage. There appears to be a pattern of debt buyers waiting until the consumer regains a semblance of financial health, so that bankruptcy to discharge the loan would be difficult, and then attempting to enforce the loan.

C. What is wrong with this (legally):

1. A claim accrues upon a missed payment or any other event that is defined as a default under the agreement. Beynon Bldg. Corp. v. National Guardian Life Ins. Co., 118 Ill.App.3d 754, 455 N.E.2d 246, 251-52 (2d Dist. 1983); Himelfarb v. American Express Co., 301 Md. 698, 484 A.2d 1013 (1984).

2. This may not require the fault of the debtor; for example, destruction or loss of collateral is universally defined as an act of default.

3. Consider whether the obligation has been repudiated by words or acts of the borrower that declare that the obligation will not be honored, or which make it impossible to honor the obligation as written

a. E.g., the destruction of the security for a second mortgage by allowing foreclosure of the first

b. The discharge of personal liability on a loan by filing bankruptcy.

c. Either coupled with extended nonpayment should amount to a repudiation or total breach, as the borrower has no right to unilaterally turn it into an unsecured obligation, or one on which there is no personal liability, and should start the statute of limitations running.

d. Hassebrock v. Ceja Corp., 2015 IL App (5th) 140037, ¶ 35-36, 29 N.E.3d 412 (“[I]t is a general principle of contract law that a continuing contract is capable not only of a series of partial breaches but also of a single total breach by repudiation or a material failure of performance. . . . A party repudiates a contract when that party explicitly or implicitly represents that he cannot or will not perform his obligations under the contract.”).

e. There are helpful cases, generally where the consumer is the person trying to use the “each installment” argument:

(1) Fu v. Publishers Clearing House, No. 604283/ 2007, 2009 WL 423800, 2009 N.Y. Slip Op. 30318(U) (N.Y.Co. Sup. Ct., Feb. 10, 2009) (person told that they would not be awarded prize payable in installments must sue within limitations period following notice);

(2) Walsh v Andorn, 33 NY2d 503, 506-07, 311 N.E.2d 476, 355 N.Y.S.2d 329 (1974) (six year statute of limitations applicable to plaintiff's claim for pension benefits payable in installments starting upon death of the pension system member runs from death, not separately for each of the installments, because “the enforceability of the right to the installments derives from and depends upon the enforceability of the primary right to the pension”);

(3) Gassiott v. Prudential Ins. Co., 08cv7358, 2009 WL 3188428 (S.D.N.Y. Oct. 6, 2009) (similar ruling on disability policy);

(4) Brehm v. Sargent & Lundy, 66 Ill.App.3d 472, 384 N.E.2d 55 (1st Dist. 1978) (action to recover pension benefits must be filed within limitations period after retirement);

(5) Kozak v. Retirement Bd. of Firemen's Annuity and Ben. Fund of Chicago, 170 Ill.App.3d 1095, 524 N.E.2d 1049 (1st Dist. 1988) (similar, court distinguishes between dispute as to amounts of payments and dispute as to whether plaintiff is entitled to any payments);

(6) Beynon Bldg. Corp. v. National Guardian Life Ins. Co., 118 Ill.App.3d 754, 455 N.E.2d 246, 251-52 (2d Dist. 1983) (action to reform mortgage not postponed because it is payable in installments; “Under the statute of limitations, a cause of action accrues when facts exist that authorize one party to maintain an action against another; thus the moment a creditor may legally demand payment the statute of limitations begins to run, because at that moment a cause of action has actually accrued. . . . Even when an obligation is payable by installments and the statute of limitations runs against each installment when due, an action to determine the existence of the right under the contract is distinct as regards the commencement of the period of limitations, and the statute of limitations begins to run when the party first has the power to make the demand.”).

V. FDCPA violations relating to collection of time-barred debt

A. Violation to sue or threaten suit. Phillips v. Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir. 2013).

B. Violation to offer settlement without clear disclosure that suit is not permissible. McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014); Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679, 683 (7th Cir. 2017).